Caracas, Venezuela: Venezuela’s parliament has proposed loosening state control over its oil industry and boosting the role of the private sector in the industry’s first major overhaul in years.
A proposal to amend Venezuela’s hydrocarbons law was introduced in the country after 2015 Abduction Former President Nicolás Maduro and the business and political parties on January 3 by the United States have generated considerable interest.
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In the wake of those events, the White House and US Energy Secretary Chris Wright announced a $500 billion energy deal between the two countries, under which Washington seeks to exert significant influence over Venezuela’s oil industry.
Approved on Thursday’s first reading, the reform breaks with many principles of oil nationalization by former President Hugo Chavez in 2006, which reserved exclusive crude marketing rights for state-owned oil company PDVSA.
The new text allows direct commercialization by private companies, allows the opening of bank accounts in any currency and jurisdiction, and, while confirming PDVSA’s majority stake in joint ventures, allows minority partners to exercise technical and operational management.
The bill proposes repealing the law that reserves ancillary services related to primary oil activities for the state, allowing private companies to subcontract oil extraction, provided they assume the associated costs and risks.
It further flexes the royalty payment, reducing it from 30 percent to 15 percent as an incentive to attract investment, especially new drilling in underdeveloped areas.
Another important change is the inclusion of legal safeguards through independent dispute-resolution mechanisms such as mediation and arbitration.
Legal certainty was among the key demands raised by multinational oil company executives during a meeting with US President Donald Trump on January 9, regarding the multibillion-dollar lawsuits filed by ExxonMobil and ConocoPhillips against the Venezuelan state following the nationalization process in 2007.
‘The Law of Ambiguity’
For economist Jose Guerra, former director of research at Venezuela’s central bank, the proposal is heavy on rhetoric. It says it lacks clarity and does not clearly establish that private companies can hold majority ownership.
“This law is a law of ambiguity, designed to avoid an overt break with Chávez’s oil legacy,” Guerra said. “Private participation is not emphasized.”
He noted that, in practice, the government has already given land to private capital through Production Participation Agreements (CPP), under which companies can effectively hold more than 50 percent.
The CPP framework emerged in 2024 when Rodríguez was serving as Minister of Energy and Oil. Its operation is marked by opacity, as it is protected by Article 37 of the anti-blockade law, which was enacted in 2019 to prevent sanctions imposed on PDVSA.
That provision establishes a regime of confidentiality and document classification, allowing the government to bypass the existing hydrocarbons law, which limits private or foreign capital to joint ventures in which PDVSA must own a majority stake.
On January 15, Rodríguez told the National Assembly that the introduction of CPPs in April 2024 would increase oil production from 900,000 barrels per day to 1.2 million bpd and that investment under the model would reach nearly $900m in 2025.
But the introduction of the proposed changes proved controversial as the draft was not made public until just hours before its first debate. The opposition refused to vote, arguing that the energy law should be considered a “social contract” in the country with the world’s largest oil reserves, which is the result of extensive and thorough consultations among all stakeholders.
‘Chevron Model’
Luis Oliveros, dean of the Faculty of Economic Sciences at the Metropolitan University in Caracas, described the formalization of the law, known as the “Chevron Model,” as a positive sign.
“This opens up space for foreign companies to assume technical, operational and financial management of the joint ventures they run, with greater flexibility,” he said. However, he added, removing PDVSA’s mandatory majority stake would have been more attractive to foreign investors.
Osvaldo Felizola, coordinator of Venezuela’s International Center for Energy and Environment (CIEA), told Al Jazeera that the reform has enough elements to invite new capital to invest in the industry, but ultimately falls short.
“What has been proposed is necessary, but not sufficient. The law needs to be updated for the 21st century,” Felizola said. “That is, there are no longer enough statistics to paralyze the industry.”
He noted that many existing companies could shift to a different operating model to improve profitability, but warned that the framework still has significant shortcomings. “It does not take into account current or future issues – climate change, for example – and therefore is not a law that will play a role for oil in the years to come,” he said.
According to Felizola, the conditions described in the reform are close to the model that prevailed in Venezuela in the last quarter of the 20th century. “Are more reforms needed? Yes. But at least there is enough room to work – and the Venezuelan government has given you permission to do so.”
The amendment bill must now go through a consultation phase and a second, article-wide debate in the National Assembly before it can be enacted. It is not clear when that will happen.
Meanwhile, energy cooperation with the Trump administration is already having an impact on Venezuela’s economy. This week, the country received its first $300 million from US crude sales, earmarked to stabilize the foreign exchange market.
“We’re seeing a change,” Guerra said. “The Rodriguez-Trump deal is clearly being implemented, and oil revenues are already flowing. The lifting of sanctions allows Venezuela to sell at market prices instead of at a discount, as it has been doing. At least, oil revenues are expected to increase by 30 percent this year compared to last year.”